Saturday, June 14, 2008

The Herd Dumps Financials

For a dividend focused investor financial stocks are frequently present in dividend growth stock screens. However, the last 12-18 months have seen financial stocks as a difficult investment choice due to real estate/commercial related loan losses. Additionally, the once steady financial dividend growers have resorted to cutting or eliminating dividends in an effort to preserve precious capital.

Yesterday, in the first 30 minutes of market trading, the stock market action in financials was nothing short amazing. Near the end of the trading day there was speculation that the trading was driven by several rumors (which I will not repeat) which fueled the selling/shorting of the financial sector.

As the below charts depict, the daily market action for a large number of financial stocks and financial focused indexes looks exactly the same: a sharp sell off in early trading and a slow recovery by the end of the day.

(click on charts for larger image)

BB&T stock chart June 13, 2008MI stock chart June 13, 2008PNC stock chart June 13, 2008WFC stock chart June 13, 2008DVY stock chart June 13, 2008RKH stock chart June 13, 2008GE stock chart June 13, 2008
The last chart is that of General Electric (GE). I included GE's chart since more than 50% of the company's earnings are derived from GE Capital. It appears investors sold GE in the morning as well.

The take away for investors in all of this is to remember to focus on company fundamentals when making investment decisions. Do not get caught up in the herd mentality that often infects the market.

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